The banking, steel, and manufacturing industries are the backbone of Luxembourg’s economy. The GDP in Luxembourg is so high that its citizens are the wealthiest in the world (CIA 2018 est.).
Even though Luxembourg is described as the “Green Heart of Europe” in travel guides, the country actually contains both rural and urban areas. The Luxembourgish economy is very comparable to Germany’s. When compared to other industrialized democracies, Luxembourg stands out for its exceptional level of economic prosperity.
Luxembourg Economy In Europe 2023 [Facts & History]
Government efforts to revive the economy, particularly the banking sector, during the Great Recession resulted in a 5% budget deficit in 2009. However, in 2010, this dropped to 1.4%.
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In 2017, the numbers are as follows: Deficit will be decreased to 0.8% by 2020; debt will be at 20.4% of GDP, and growth will be 4.6%; inflation will be at 1%, and there will be no new debt incurred in the fiscal year.
In 2013, services, which includes the financial sector, contributed 86% to the country’s GDP totaling $60.54 billion. 36 percent of GDP came from banking and insurance, 13 percent from manufacturing, and 3 percent from farming.
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Luxembourg Banking Sector
Luxemburg’s largest industry is banking. According to the 2019 Global Financial Centres Index, Luxembourg is the 25th most competitive financial center worldwide and the third most competitive financial center in Europe (after London and Zürich).
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The administration of international funds is a particular area of expertise for the country. Due to the modest size of the domestic market in Luxembourg, the majority of the financial activity in the country is conducted by foreigners. There were almost 27,000 people employed by the 152 banks in Luxembourg as of the end of March 2009.
The country’s political stability, advanced infrastructure, proximity to other European financial hubs, availability of experienced multilingual staff, history of banking secrecy, and proficiency in international finance have all helped the sector’s rapid expansion. This helps explain why in 2012 the country had a DAW Index ranking of 10 (the highest in Europe) and a Corruption Perceptions Index score of 8.3.
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The highest concentration of banks is located in Germany, but significant numbers of banks hail from other countries, including Scandinavia, Japan, and the United States. As of the end of 2008, total assets were worth more than €929 billion. There are more than 9,000 holding corporations based in Luxembourg. Additionally, the European Union’s central bank, the European Investment Bank, is headquartered there.
The G20 listed Luxembourg on a “grey list” of countries with problematic banking arrangements in April 2009 out of concern for the country’s banking secrecy laws and its image as a tax haven but later removed it.
Due to these worries, Luxembourg has revised its tax legislation in an effort to avoid conflicts with the tax authorities of European Union Members. Examples include the European Commission’s 31 December 2010 ban on the traditional tax-exempt 1929 Holding Company because of its classification as illegal state aid.
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Bringing English metallurgy to Luxembourg in 1876 was a watershed moment in the country’s economic development. The growth of Luxembourg’s steel industry and the establishment of the Arbed firm in 1911 can be directly attributed to the refining process.
Luxembourg Steel Sector
The introduction of English metallurgy in 1876 was a watershed moment in Luxembourg’s economic history . As a result of the refining process, Luxembourg’s steel industry grew, and in 1911, the Arbed firm was established.
In 1974, the government first took a 31% stake in Arbed as part of a plan to restructure the sector. Timely facility upgrading, reductions in output and employment, government acceptance of a portion of Arbed’s debt, and the current cyclical revival of international demand for steel have all contributed to the company’s return to profitability.
It has one of the greatest rates of productivity in the world. About 6% of Arbed’s production is sold in the United States. Large architectural steel beams and other value-added items are the company’s forte. Although the steel industry has declined, Luxembourg has emerged as a financial hub, offsetting this trend.
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Arbed merged with Aceralia and Usinor in 2001, changing its name to Arcelor in the process. In 2006, Mittal Steel, led by Lakshmi Mittal, acquired Arcelor, creating Arcelor-Mittal, the world’s largest steel company.
Luxembourg Telecommunication Sector
The government of Luxembourg is actively encouraging the city’s growth into a global hub for the media and technology industries. The Luxembourgish private radio and television network Radio-Television-Luxembourg is often regarded as the best in Europe.
The “Société européenne des satellites” (SES) was founded in 1986 with support from the government of Luxembourg to set up and run a satellite telecommunications system for broadcasting television across Europe.
The Ariane Rocket successfully launched the first SES Astra satellite, the 16-channel RCA 4000 Astra 1A, in December 1988. By far the most lucrative satellite service provider today is SES.
Luxembourg Tourism Sector
Economically, tourism is significant, accounting for 8.3% of GDP in 2009 and providing jobs for around 25,000 people (11.7% of the labor force).
Over 900,000 tourists visit the Grand Duchy each year, staying an average of 2.5 nights in hotels, hostels, or campgrounds despite the current situation.
The percentage of overnight stays attributed to business travel increased from 44% to 60% nationally and from 60% to 64% in the capital city between 2009 and 201
Luxembourg Agricultural Sector
The agricultural industry in Luxembourg may be modest, but it is substantially subsidized, mostly by the European Union and the government.
About 1% to 3% of the labor force is employed there. Animal husbandry and dairy farming provide for the vast majority of farmer income. About 15 million liters of dry white wine is produced each year in the Moselle Valley, most of which is consumed in Luxembourg but also to a smaller extent in Germany, France, and Belgium.